Download Printable PDF file
Capital Gains Tax
In September 1985 Australia introduced a capital gains tax (CGT) for the first time. This means that assets acquired after 19 September 1985 are potentially subject to CGT.
Up until 21 September 1999 a system of indexation applied whereby a taxpayer only paid capital gains tax when the sales proceeds of an asset exceeded its indexed cost base. This means that up until 21 September 1999 the cost base is increased (to take into account the effects of inflation).
From 21 September 1999 onwards the indexation system was "frozen" and a new system was introduced whereby individual taxpayers receive a reduction of 50% (or discount) on the actual capital gain derived. Superannuation funds receive a one third discount and companies do not receive any discount. This means that it may be less desirable to acquire capital appreciating assets in a company structure.
If a capital loss is incurred it can be carried forward to be offset against any future capital gains. A capital loss is offset against capital gains before any discount is applied.
If an asset was acquired before 21 September 1999 and the frozen index method would render a more favourable tax result, then the taxpayer can elect to use the frozen index method. The frozen index method may be more appropriate where capital losses are available, because this will absorb less of the capital loss.
Many individual taxpayers are affected by capital gains tax through the sale of property or shares. In some cases this is brought about by a company reorganisation, buy-back of shares, demutualisation or spin off. Careful record keeping is essential if you are to properly calculate your capital gain tax liability. Please contact me if you require help in maintaining a register of your assets that are potentially subject to capital gains.